Sovereign CDS Big Movers

2 Responses to Sovereign CDS Big Movers

1. jck says:

   February 14, 2009 at 1:04 pm

   Barry:
   “I recall over a decade ago selling protection on Russian debt.”
   That must have been fun…
   I don’t exactly know how they hedge but it’s probably easier with OECD debt than with Russia, reason for that is that markets are more liquid plus the OECD sovereigns CDS are very highly correlated with the steepness of the yield curve, basically it depends of the net position, the best way obviously is to run a matched book, but you want to position on a different part of the curve depending on whether net seller or buyer of protection, as the cheapest to deliver option is large given you can deliver up to 30 yr paper and some people think including stripped principal.
2. barry says:

   February 13, 2009 at 5:14 pm

   How do you suppose they hedge these CDS on sovereign debt? I recall over a decade ago selling protection on Russian debt. We did the standard hedge of shorting some Russian bonds and going long T note futures. Even that was a roller coaster ride. Don’t see how you can hedge CDS on OECD debt.